What Determines The Price Of Consumer Price Of Goods And Services?

Kandahar said:

But why would everyone ELSE be selling it at $8 per gallon, if not because of supply and demand? "Competition" is just another way of saying supply and demand. The reason gas sells for approximately $3 per gallon, rather than approximately $8 per gallon, is because 3 dollars is approximately the price where the amount of gas that consumers are willing to buy, and the amount of gas that suppliers are willing to sell, are equal.

Click to expand...

According to supply-demand theory the supply and demand would come to the equilibrium at all prices if market is left on its own.

The reason the price is $3 is because the Petroleum companies decide to sell it at $3. And for $3/galleon, they sell a certain amount to the consumers who are willing to buy it at that price. If the price goes up, they may sell less quantity depending on the demand elasticity of fuel. Competition in the oil industry is suspect given the fact that they seem to have a tacit agreement to not have a price war on each others. If there were perfect competition, then prices would come close to the supply costs + economic costs.

nonpareil said:

According to supply-demand theory the supply and demand would come to the equilibrium at all prices if market is left on its own.

Click to expand...

No. Any attempt to charge more than the market value (e.g. trying to sell it for $8 per gallon) will result in a surplus, because stations will be unable to sell their gas. Any effort to charge less than the market value (e.g. selling it for $1 per gallon) will result in a shortage, as eager consumers hoard as much gas as they can at the bargain prices. The market value is the price at which the quantity supplied and the quantity demanded are equal.

The reason the price is $3 is because the Petroleum companies decide to sell it at $3. And for $3/galleon, they sell a certain amount to the consumers who are willing to buy it at that price. If the price goes up, they may sell less quantity depending on the demand elasticity of fuel.

Click to expand...

Right, in other words the demand determines their price.

Competition in the oil industry is suspect given the fact that they seem to have a tacit agreement to not have a price war on each others.

Click to expand...

Oil is arguably the most commoditized product in the world, with many buyers and sellers. The price wars are constant, and are the reason a barrel of oil trades the same everywhere in the world...usually down to the penny.

If there were perfect competition, then prices would come close to the supply costs + economic costs.

Click to expand...

Not necessarily, if more barrels of oil are being demanded at that price than what the oil companies can supply.

Since all commodities are linked to the stock market, it determines price of goods. Resources are bet on like race horses. Of course prices are going to fluctuatute. Then their are times when the stock market is manipulated to recieve the price they want for their goods, it happens and I'm not getting into it.

Commodity - Wikipedia, the free encyclopedia

radcen said:

Supply can be manipulated.

Click to expand...

Both supply and demand can be manipulated. But, supply and demand still determine the price of consumer price of goods and services. Much of the arguments presented herein against the supply/demand answer describe influences on supply and influences on demand.

For example, the government can influence supply through regulation/restriction and can influence demand through public relations or by forcing the public to buy something the public doesn't want. An oligopoly can influence supply. A marketing campaign can influence demand.